Checklist: Determining whether employees are exempt from wage and hour laws (USA)

Introduction

This checklist will help in-house counsel, private practitioners and human resource professionals to determine whether an organization’s employees are exempt from the Fair Labor Standards Act (FLSA) minimum wage and overtime pay requirements.

This checklist covers the following steps:

1. Determine whether employees are exempt from both minimum wage and overtime pay requirements
2. Determine whether employees are exempt from overtime pay requirements only

This checklist provides an overview of the framework for making these determinations and is presented as a list of possible exemptions that employers can check off as they are considered. The checklist is followed by explanatory notes that correspond with each item in the checklist.

This checklist only covers federal law. Employers should be aware that state laws dealing with overtime pay and minimum wage requirements may set different standards that are more favorable to employees.

For further information on the FLSA, including details of exceptions that may apply in addition to the exemptions, see How-to guide: How to understand and comply with wage and hour laws.

Step 1 – Determine whether employees are exempt from both minimum wage and overtime pay requirements

Step 2 – Determine whether employees are exempt from overtime pay only

General Notes

Legal framework

The Fair Labor Standards Act (FLSA) is a US federal law that provides standards for overtime pay and the minimum wage. The FLSA applies to most businesses that have employees in the United States. It sets out requirements for employers to pay employees:

• a minimum wage of $7.25 per hour; and
• overtime pay at 1.5 times the employee’s regular pay for all hours worked over 40 hours per workweek (a workweek is defined as a fixed and regularly recurring period of 168 hours, or seven consecutive 24-hour periods).

For further information about the FLSA, see How-to guide: How to understand and comply with wage and hour laws.

The FLSA provides a number of exemptions from minimum wage and overtime requirements. These exemptions apply primarily to employees who work in executive, administrative, professional, computer-related, or outside sales positions. To qualify for these exemptions, employers must justify the exemption by carrying out a test analyzing the precise duties and the compensation of the employee. Job titles alone do not guarantee an exemption.

The criteria for determining whether a particular position is exempt are set by US Department of Labor (DOL) regulations (see 29 CFR Part 541).

Key considerations

Employees are presumed to be covered by the FLSA. It is the obligation of the employer claiming that an employee is exempt to justify any exemptions. The exemptions are established by examining:

• the primary duties of an employee; and
• the level of employee compensation.

Exemptions can apply to the minimum wage or to overtime pay, or to both. Employees covered under the executive, administrative, professional, computer-related, and outside sales exemptions typically are exempted from both minimum wage and overtime pay requirements, while other positions may be exempted only from overtime pay requirements.

The exemptions are narrowly defined, so employers should carefully check the exact requirements. Determining whether an exemption to the FLSA ultimately applies to certain employees requires an analysis of the specific facts and circumstances of their status.

Step 1 – Determine whether employees are exempt from both minimum wage and overtime pay requirements

Exemptions from both minimum wage and overtime pay requirements apply to employees who meet the requirements of any of the executive, professional, computer-related, outside sales, or highly compensated employee exemptions.

Note that the DOL issued a new rule in 2024 rule (29 CFR 541) that mandated a change in minimum wage and overtime pay requirements for executive, administrative, and professional employees. The current minimum annual wage is $35,568 ($684 weekly) and $107,432 for highly compensated employees. Under the DOL Final Regulation the standard salary amounts increased to $844 weekly ($43,888 annually) on July 1, 2024, and then $1,128 weekly ($58,656 annually) on January 1, 2025. The annual amounts for highly compensated salary levels increased to $132,964 on July 1, 2024. Then, starting July 1, 2027, and every 3 years thereafter, the amount required to be paid for weekly and total annual compensation was to be updated to reflect earnings data at that time.

However, on November 15, 2024, the U.S. District Court for the Eastern District of Texas vacated the Department’s 2024 final rule (see State of Texas v. United States Department of Labor et al, No. 4:2024cv00499 - Document 38 (E.D. Tex. 2024)). As a result, the DOL has reverted back to the prior wage threshold amounts. These are the amounts reflected in the following sections.

The federal court ruling has prompted a number of organizations to revisit the salary and employee classification adjustments they put in place in anticipation of the July 1, 2024 enforcement date of the regulation. It is unlikely that the rule will be reinstated by the current presidential administration. In light of that situation, employers will need to make their own strategic decisions on how to proceed.

For entities like counties or courts that opted to raise salaries to meet the anticipated threshold, reversing these increases is generally not advised. If the decision was made to increase an employee's salary to maintain exempt status—rather than reclassify them as non-exempt—it suggests a determination that raising wages was more economically viable than paying frequent overtime. Since this evaluation was based on the employee's workload, the implemented pay increase is likely justified.

Similarly, if a classification was changed from exempt to non-exempt instead of raising the salary, this reclassification should remain in place. A non-managerial employee who does not regularly work an excessive amount of overtime may already meet the criteria for non-exempt status. If there is uncertainty regarding an employee's correct classification, the more prudent and legally safe approach would be wisest.

Should an employee who has been reclassified as a non-exempt employee start to accumulate substantial overtime hours (ie, in excess of 40 hours per week), that employee’s status should be reviewed. Employees should be mandated to obtain prior approval for any overtime work. If the workload necessitates regular overtime, additional staffing may be necessary.

1.1 Does the employee satisfy the elements of the executive exemption?

The executive exemption applies to an employee who is employed in a bona fide executive capacity and who is compensated on a salary basis of no less than $684 per week or its monthly or bi-monthly equivalent. The following requirements (listed below) must also be considered.

• An executive employee’s primary duty is ‘management of the enterprise,’ and the executive must be employed in a department or subdivision traditionally associated with executive employment.
• An executive ‘customarily and regularly’ directs the work of two or more employees, and has authority to hire or fire, promote or demote, other employees, or has a status in the organization where the purported executive’s word on hiring and firing is given particular weight.
• Other management tasks may include, but are not limited to:
  • setting work hours and rates of pay;
  • directing the work of employees;
  • maintaining production and sales records;
  • supervising and rating employee performance; and
  • adjudicating employee grievances.

Executives may engage in concurrent duties other than those of management without losing their executive status.

Any employee who owns 20% or more of the enterprise and is actively engaged in its management is an executive. No salary requirement is necessary for establishing that such an employee is an executive.

1.2 Does the employee satisfy the elements of the administrative exemption?

An employee covered by the administrative exemption is an employee who is compensated at a rate of not less than $684 per week or its monthly or bi-monthly equivalent. The following requirements (listed below) must also be considered.

• The administrative employee’s primary duties consist of non-manual labor directly related to the ‘management or general business operations of the employer or the employer’s customers.’
• An administrative employee’s primary duty includes ‘the exercise of discretion and independent judgment’ on matters of significance.

Management and general business operations mean work directly related to assisting with ‘the running or servicing of the business.’ This type of work customarily includes, but is not limited to, finance, marketing, budget production, safety and health, human resources, public relations, and similar.

1.3 Does the employee satisfy the elements of a professional exemption?

There are two types of professional exemption: learned and creative. Both types of exemption cover employees whose work involves independent judgment.

1.3.1 Learned professional

A learned professional is an employee who is compensated at a rate of no less than $684 per week, and whose primary duty is a task that requires knowledge of ‘an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction.’

The phrase ‘customarily acquired by a prolonged course of specialized intellectual instruction’ restricts the exemption to professions where specialized academic training is a standard prerequisite for entrance into the profession. Skills learned through experience or on-the-job training are not covered by this exemption. For example, in a case involving whether social workers would qualify for the exemption, the court held that even though hiring requirements may have increased and required an advanced degree, it was the duties of the job that were determinative in whether the learned professional exemption applied. See Solis v. State of Washington Dep't of Soc. & Health Servs., No. C08-5479 BHS, (US District Court, W.D. Wash. Mar. 08, 2016).

The phrase ‘work requiring advanced knowledge’ includes work that requires ‘consistent exercise of discretion and judgment,’ as opposed to work that requires routine manual or physical labor. Learned professionals include doctors, lawyers, accountants, engineers, and educators. Other professions whose work requires advanced training or degrees, or that require state licensure, are also exempt. Employees such as medical technologists, nurses, physicians’ assistants, athletic trainers, funeral directors, and chefs may be classified as exempted employees under this exemption. The Department of Labor notes that the type of work for which the professional exemption may be available is expanding.

1.3.2 Creative professional

A creative professional is engaged in work that requires ‘invention, imagination, originality or talent’ in a creative or artistic field.

Such an employee’s primary duty must involve those qualities in a recognized artistic or creative field. The exemption does not apply to someone who possesses general abilities and training. The duties of a creative professional vary widely and must be evaluated on a case-by-case basis. Examples of creative workers include actors, singers, musicians, artists, cartoonists, and writers of various types. Only some journalists qualify for such an exemption, based on the creativity and originality of their work.

1.4 Does the employee satisfy the elements of the computer-related occupation exemption?

An employee exempt as a computer employee is compensated at a rate of no less than $684 per week or an hourly rate of not less than $27.63.

This exemption applies to computer employees whose primary duty consists of:

• systems analysis techniques and procedures;
• the design, development, documentation, analysis, and testing of computer systems and prototypes;
• the design, creation, and testing of computer systems connected to machine operating systems; or
• a combination of those skills.

The exemption does not apply to employees engaged in the manufacturing and repair of computer hardware and related equipment. Nor does it apply to employees whose work is highly dependent upon the use of computers but who are not engaged in ‘computer systems analysis and programming’ or other such related skills.

1.5 Does the employee satisfy the elements of the outside sales exemption?

An employee engaged in outside sales is an employee whose primary duty is making sales or obtaining ‘orders or contracts for services or for the use of facilities for which consideration will be paid by the client or customers.’ As the name would suggest, the employee’s primary work is done away from the employer’s place of business. Sales under this exemption include the sale of tangible or intangible commodities or services.

An outside sales employee may sell or promote at a client’s place of business, or door to door. Drivers or delivery persons who also engage in sales work may be exempted in this category only if their primary duty is sales. Any work performed by an employee whose primary duty is outside sales, but which would not ordinarily be exempted (eg, making fliers, planning exhibitions, etc), should be considered exempted work if that work supports the employee’s outside sales.

1.6 Does the employee satisfy the elements of the highly compensated employee exemption?

An employee whose total annual compensation is at least $107,432 is deemed exempt if that employee ‘customarily and regularly performs any one or more of the exempt duties or responsibilities of an executive, administrative or professional employee'.

This exemption differs from the others in that the exempt employee’s primary duties are not necessarily exactly the same as those of the exemptions. It is enough that one or more of those duties are customarily or regularly performed.

Total annual compensation may include commissions, nondiscretionary bonuses, and other types of compensation during a 52-week period.

1.7 Does another exemption apply?

There are a variety of commonly used exemptions to FLSA minimum wage and overtime requirements listed in the FLSA. They exist in a wide variety of fields. These include, but are not limited to:

• commissioned sales employees;
• transportation employees such as drivers, loaders, and mechanics;
• farm workers;
• employees of automobile dealerships such as salesmen, partsmen, and mechanics;
• employees of seasonal recreational and amusement establishments;
• employees of small newspapers, or newspaper delivery persons;
• crew of foreign vessels;
• casual babysitters or companions to the elderly or infirm; and
• employees of motion picture theaters.

A special minimum wage ($4.25 per hour) applies to workers under age 20 who have been employed for 90 days or less. Workers who derive much of their wages from tips are paid at a lower hourly rate ($2.13 per hour). Note that some states enforce a higher hourly rate for these types of employees.

Step 2 – Determine whether the employees are exempt from overtime pay requirements only

2.1 Do any of the specific overtime-only exemptions apply?

There are some occupations that are exempted from overtime pay only, although these are few and are specified in the FLSA. Note, some of these exempted occupations are regulated by other federal laws or by state law. The following is a non-exclusive list:

• employee working for a rail carrier;
• outside buyer of certain types of farm products;
• seaman;
• employee of broadcasting services in small markets;
• mechanic;
• employee engaged in the sale of boats, airplanes, farm equipment;
• employee responsible for maintenance of ditches, canals, or reservoirs;
• auctioneer;
• taxi driver;
• maple syrup maker;
• domestic servant; and
• casual babysitter.

Additional resources

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How to develop a whistleblower policy and reporting program
How to use arbitration agreements in employment
How to prepare for an Occupational Safety and Health Administration (OSHA) inspection
How to comply with the unemployment insurance program

How to understand and comply with wage and hour laws

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Terminating the employment of an at-will employee

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